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May 10 2016

Reading economic portents can be tricky.

For example, do signs that economic growth is slowing – like last week’s employment report, which was anemic relative to consensus forecasts, and first quarter’s gross domestic product (GDP) growth – mean the economy is headed for trouble? Or, does it mean the economy is going to continue to grow slowly?

It all depends on whom you ask.

Some see current lackluster economic data as a harbinger of trouble. Last week, Barron’s cited an expert who was concerned about employment data. “…It could be a sign of trouble…Specifically, falling profit margins will put pressure to trim costs and head counts later this year and into 2017, which would slow consumer-spending growth.”

Others believe the United States is destined to experience a persistent period of slow growth. In 2013, Barron’s suggested the enviable pace of growth in the United States since World War II was likely to decline, along with the size of its working-age population and gains in worker productivity. The new era:

“…could have broad repercussions that will affect not only the pugilists in Washington but businesses and investors. Weaker growth will make it harder for companies to improve earnings, fatten dividends, or garner better stock returns. It also threatens to fan social inequality and class tensions and limit the ability of government to fund various entitlement programs like Medicare and Social Security. Tax revenues also are likely to fall short of projected levels.”

Of course, a lot depends on how you gauge growth. A 2009 discussion in a Harvard Business School blog asked whether slower growth, as measured by current indicators, was meaningful since, as this commentary mentioned last week, gross domestic product (GDP) is a flawed indicator. “Further, in an age of concern about the environment, questions are raised about whether certain forms of growth – let alone incorrect measures – serve a very good purpose.”

Investors expressed their opinions last week. They weren’t thrilled by mixed economic data or the possibility of slower growth. Reuters suggested markets’ downward shift indicated a reduced appetite for risk.

Sources:
http://www.barrons.com/articles/trump-on-the-debt-the-dollar-and-yellens-fed-1462593730?mod=BOL_hp_we_columns
https://www.bea.gov/newsreleases/national/gdp/gdphighlights.pdf
http://www.barrons.com/articles/SB50001424053111904897104579149772682783890
http://hbswk.hbs.edu/item/what-does-slower-economic-growth-really-mean
http://www.reuters.com/article/us-usa-stocks-idUSKCN0XX0ZT

  • Data as of 5/06/161-WeekY-T-D1-Year3-Year5-Year10-Year
  • Standard & Poor’s 500 (Domestic Stocks)-0.0040.007-0.0150.0830.090.045
  • Dow Jones Global ex-U.S.-3.7-2.1-14.6-2.9-2.3-1.2
  • 10-year Treasury Note (Yield Only)1.8NA2.31.83.25.1
  • Gold (per ounce)0.321.47.9-3.7-2.86.7
  • Bloomberg Commodity Index-2.56.2-20.3-14.4-12.2-7.3
  • DJ Equity All REIT Total Return Index4.38.6158.311.57

*Indices are unmanaged and investors cannot invest directly in an index.
*Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
*S&P 500, Gold, Dow Jones Global ex-Us, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend).
*The DJ Equity All REIT Total Return Index does include reinvested dividends.
*All investments involve risk – coins and bullion are no exception. The value of the bullion and coins is affected by many economic circumstances, including the current market price of bullion, the perceived scarcity of the coins and other factors. Therefore, because both bullion and coins can go down as well as up in value, investing in them may not be suitable for everyone. Since all investments, including bullion and coins, can decline in value, you should understand them well, and have adequate cash reserves and disposable income before considering a bullion or coin investment.

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Bart A Zandbergen, CFP® is a Registered Investment Advisor with Optivest, Inc and a Registered Representative with Gramercy Securities, Inc. Investment advisory services are offered by Optivest, Inc. under SEC Registration and securities are offered through Gramercy Securities, Inc., member FINRA & SIPC, 3949 Old Post Road, Charlestown, RI, 02813, 800-333-7450.

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